June 01, 2014

Brooks Laboratories

Brooks Laboratories is a contract manufacturing company in the pharma sector. It was established in the year 2002. The company supplies molecules used in injectables, clavulanic acid range and dry syrups. The company boasts of clients such as Zydus, Alembuc, Wockhardt, etc. At current market price of Rs. 23, the company has a market cap of Rs. 37.8 crores. The current unit of the company is at BADDI which is an excise free zone and enjoys CST at 1%. The company is also coming up with a unit at Vadodra, on the Vadodra-Mumbai highway.

The company has seen a rise in it's revenues from Rs. 45 Crores in 2009 to Rs. 85 Crores in 2014 which means a 6 year CAGR of 11.18%. The company's net profit has also gone up from 2.96 Crores in 2009 to 7.24 Crores in 2014. The NPM of the company is thus maintaining around 8.5% and OPM around 10.10%, falling 8.8% from 18.9% in 2012. The reserves of the company stood at Rs. 96.1 Crores in 2014 compared to 5.77 Crores in 2009, also the company has reduced debt from Rs. 16 Crores in 2009 to just Rs. 14 Lakhs in 2014. The company has no long term debt in it's balance sheet. The equity of the company has increased from Rs. 2.58 Crores to Rs. 16.19 Crores in the 2009 to 2014 period. The operating profits of the company reduced from Rs. 9.69 Crores to Rs 7.69 Crores but the Net profit has stayed flat at Rs. 7.24 due to reduction in tax expense from Rs. 2.5 Crores to Rs. 24 lakhs on back of MAT credit. The EPS has stayed flat at Rs. 4.47 in 2014 compared to Rs. 4.41 in 2013. At Rs. 23, the company is trading at a P/E ratio of roughly 5.5. The company doesn't pay any dividend.

The shareholding of the promoter group stands at 60.62% and public shareholding at 39.38%. Going by the current market scenario, Brooks Laboratories is a penny stock available at cheap valuation and the addition of the unit at Vadodra can provide significant boost to the revenues and earnings. Margin remains a point of concern. Overall, with such low debt and healthy reserves in hand, the reserves per share works out to around 55-56. The stock is a good small cap stock to add to one's portfolio for the long run. Add some quantity now and in the coming quarters keep a watch on the margin. The pharma sector boom hasn't trickled down to the contract manufacturing companies but could happen in the coming years.